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Payment delays on school jobs vex contractors

After 16 years in the construction business, Patrick Dempsey is at the end of his rope.

The Maspeth-based electrical subcontractor is on the brink of bankruptcy, the electrical workers’ union has convinced most of his 25 employees to quit over unpaid retirement benefits and he blames his woes on his biggest potential income source: the city School Construction Authority.

He is one of dozens of companies waiting — and struggling — as the agency works to resolve hundreds of millions of dollars of SCA contract changes for work already completed.

“My company’s dead, I’m done,” Dempsey said, noting his Bayside apartment is in jeopardy of foreclosure. “My name is shot with the SCA now because I’ve had to go to the politicians. My guys are gone.”

A call to the SCA was referred to the city Department of Education, which was unable to answer a series of questions by press time.

PJ Dempsey & Co., which Dempsey founded in 2003 after nine years as an electrician, joined the union specifically to pursue school jobs, he said. Now all but three of his workers have departed and he is starting to get letters warning him about delaying ongoing school projects.

Things went smoothly at first as he underwent the SCA’s mentor program, taking smaller jobs supervised by an SCA official. But when Dempsey began bidding for and winning subcontractor jobs renovating existing schools, he ran into the snag.

Any time a school construction contract is significantly altered, contractors and subcontractors are required to submit a “change order” requesting additional payment if the project expands or reducing the charges if the job gets smaller. For example, if asbestos were found during the work, the contractor’s job would become bigger.

Of 3,545 open change order applications listed in a March 5 report on the SCA’s Web site, only 173 appeared to have been resolved. At least one open case dates back to 2005.

Rockville Centre-based attorney Henry Goldberg, who specializes in contractor cases, has estimated there are between $600 million and $800 million in change orders waiting to be finalized and paid to contractors and subcontractors.

Dempsey said the SCA owes him a total of $720,457, some of it for jobs he completed nearly a year ago. The agency finally signed off on two change orders from June 2009 last month, he said.

“I use electricity, I have to pay Con Ed in 30 days. I use the phone, I have to pay Verizon in 30 days,” he said about the lack of prompt payment.

In the meantime, the union has sued him in federal court for the benefits he said he cannot pay his workers because of the city’s delay.

The Local 3 union did not return phone calls requesting comment on the issue.

Goldberg said litigation is not a practical alternative for frustrated contractors.

“It’s like surgery,” he said. “It’s really a last resort because it’s expensive. And the contractor, as soon as he starts litigating against a public agency, he’s already being penalized.”

At least one SCA subcontractor, Yonkers-based Cavalry Construction Inc., claims it was forced into Chapter 11 bankruptcy because the agency had not paid $1.4 million in change orders between 2001 and 2009. A federal bankruptcy judge ordered the SCA to repay that amount plus interest last year, but the SCA has appealed the decision.

Goldberg said contractor groups and the SCA have sat down to try to work out a better way to resolve these payment issues, but solutions are slow in coming. One provision, established in 2008, would require the agency to incrementally pay a contractor up to 80 percent of the SCA’s estimate for the change order while the entities negotiate.

But both Goldberg and Dempsey said the SCA frequently offers between 30 percent and 40 percent of what contractors believe these change orders are worth.

“It’s a captive market,” Goldberg said, referring to the downturn in construction that has left the SCA as one of the largest sources of construction jobs in the metropolitan area. “Some owners are realistic and some owners are overly aggressive. The SCA is in the aggressive category.”

Reach reporter Jeremy Walsh by e-mail at jewalsh@cnglocal.com or by phone at 718-260-4564.

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